Fali Huang

Building Social Trust: A Human-Capital Approach

Much evidence suggests individuals differ in their predisposition to cooperate, which is essentially a component of human capital. This paper examines the role of individual cooperative tendencies and their interactions with institutions in generating social trust; it also endogenizes cooperative tendencies using a human capital investment model. Multiple equilibria and inefficiencies exist due to positive externalities. An innovative finding is that, when institutions are more effective in punishing defecting behaviors, more people invest in cooperative tendencies and hence the endogenous social trust is higher, though the equilibrium cooperative tendencies are lower. This paper provides a plausible explanation for many empirical and experimental results.

The Coevolution of Economic and Political Development from Monarchy to Democracy

This article establishes a unified political economy model to analyze the democratization process from monarchy to oligarchy and to democracy in the context of dynamic economic development. As the predominant source of wealth evolves from land to physical capital and finally to human capital, the relative economic and hence coercive power of land owners, capitalists, and workers shifts accordingly, inducing the transition of the political system where political power is expanded from landlords to capitalists and finally to workers. A smooth transition through political compromise facilitates efficient allocation of savings in physical capital followed by efficient investment in human capital.

To Trust or to Monitor: A Dynamic Analysis

In a principal?agent framework, principals can mitigate moral hazard problems not only through extrinsic incentives such as monitoring, but also through agents intrinsic trustworthiness. Their relative usage, however, changes over time and varies across societies. This paper attempts to explain this phenomenon by endogenizing agent trustworthiness as a response to potential returns. When monitoring becomes relatively cheaper over time, agents acquire lower trustworthiness, which may actually drive up the overall governance cost in society. Across societies, those giving employees lower weights in choosing governance methods tend to have higher monitoring intensities and lower trust. These results are consistent with the empirical evidence.

TRADE AND DIVERGENCE IN EDUCATION SYSTEMS

This article presents a theory on the endogenous choice of education policy and the two‐way causal relationship between trade and education systems. A countrys education system determines its talent distribution and comparative advantage; the possibility of trade by raising the returns to the sector of comparative advantage in turn induces countries to further differentiate their education systems and reinforces the initial pattern of comparative advantage. Specifically, the Nash equilibrium choice of education systems by two countries interacting strategically are necessarily more divergent than their autarky choices, and yet less than what is socially optimal for the world.

Trade and Divergence in Education Systems

This article presents a theory on the endogenous choice of education policy and the two‐way causal relationship between trade and education systems. A countrys education system determines its talent distribution and comparative advantage; the possibility of trade by raising the returns to the sector of comparative advantage in turn induces countries to further differentiate their education systems and reinforces the initial pattern of comparative advantage. Specifically, the Nash equilibrium choice of education systems by two countries interacting strategically are necessarily more divergent than their autarky choices, and yet less than what is socially optimal for the world.

The Transition from Relational to Legal Contract Enforcement

This paper studies the transition of contract enforcement institutions. The prevalence of relational contracts, low legal quality, strong cultural preference for personalistic relationships, low social mobility, and highly unequal endowment form a cluster of mutually reinforcing institutions that hinder economic development. The cultural element per se does not necessarily reduce social welfare though it may slow down the legal development, while the real problem lies in endowment inequality and low social mobility. Thus a more equal distribution of resources may be the ultimate key to unravel the above interlocking institutions. These results are generally consistent with the empirical

Child Development Production Functions

This paper estimates production functions of child cognitive and social development using NLSY79 child data. A longitudinal sample of eight- and nine-year-old children is constructed, which includes over two hundred home and school inputs starting from mothers prenatal care period as well as family background variables. A tree structured regression method is used to conduct estimation under various specifications, explicitly allowing for unobserved heterogeneity and non-linear structures. A small subset of earlier and current home inputs are found consistently important in explaining variances of child development results, while family backgrounds variables are seldom selected as primary predictors. The effect of maternal employment is negligible when detailed inputs are controlled, and the score gaps across race can be almost completely accounted for by home and school inputs.

The Coevolution of Economic and Political Development

This paper establishes a simple model of long run economic and political development, which is driven by the inherent technical features of different production factors, and political conflicts among factor owners on how to divide the outputs. The main capital form in economy evolves from land to physical capital and then to human capital, which enables their respective owners (landlords, capitalists, and workers) to gain political powers in the same sequence, shaping the political development path from monarchy to elite ruling and finally to full suffrage. When it is too costly for any group of factor owners to repress others, political compromise is reached and economic progress is not blocked; otherwise, the political conflicts may lead to economic stagnation.

Finding dynamic treatment effects under anticipation: the effects of spanking on behaviour

Summary.  The dynamic treatment effect literature considers multiple treatments administered over time, with some treatments affected by interim outcomes. But the literature overlooks the possibility of individuals acting in anticipation of future treatments. This lack of anticipation aspect may not matter in the drug–response relationships which motivated the literature. But human beings (or animals with some intelligence) do not just respond to current and past treatments, but also ‘reflect and anticipate’ future treatments. For example, a punishment or reward is likely to prompt forward looking. Even if no personal punishment or reward is involved, people may take action in anticipation of a future government policy, which would be an important concern for policy makers. The paper explores how to find dynamic treatment effects allowing for forward looking or anticipation by extending available dynamic treatment effect approaches in the literature. Then the methods proposed are applied to the effects of spanking on a childs bad behaviour where a child may act better in anticipation of future spanking, which is analogous to the relationship between punishment and crime.

Does Television Viewing Affect Children's Behaviour?

Using three-period panel data drawn from the National Longitudinal Survey of Youth 1979, we investigate whether television (TV) viewing at ages 6–7 and 8–9 years affects childrens social and behavioural development at ages 8–9 years. Dynamic panel data models are estimated to handle the unobserved child-specific factor, endogeneity of TV viewing, and the dynamic nature of the causal relation. Special emphasis is placed on this last aspect, focusing on how early TV viewing affects interim child behavioural problems and in turn affects future TV viewing. Overall, we find that TV viewing during ages 6–7 and 8–9 years increases child behavioural problems at ages 8–9 years, and that the effect is economically sizable.